insolvency practitioner

Insolvency Practitioner and Business Recovery Professionals

Currently, there are approximately 1,600 licensed insolvency practitioners (IPs) licensed and registered in the UK. The majority of IPs work for legal or accountancy firms, or for a dedicated business recovery and insolvency practice.

insolvency practitioner

The role of an insolvency practitioner involves more than just liquidating solvent and insolvent companies. They are also very much involved in business recovery and insolvency rescue plans.

With predictions of corporate insolvencies being much higher in the first two quarters of 2021 due to the coronavirus pandemic – some are saying a potential 60% increase over the global financial crisis of 2009 – IPs are in demand. To help, the Government recently announced extensions to certain measures that are aimed at protecting directors and their companies who have been impacted by COVID-19.

These measures have been extended until 30th June 2021:

  • Winding up petitions and statutory demands – they will continue to be restricted until 30th June 2021 in order to protect companies from being forced into liquidation by creditors if the debts are due to COVID-19
  • Wrongful trading – if a company’s financial position has worsened between 26th November 2020 and 30th June 2021 due to COVID-19, directors’ liability under wrongful trading is relaxed
  • Small suppliers – small businesses will not have to continue supplying an insolvent business. In addition, larger businesses will also be able to stop supplying or ask for extra payments if a company is going through a business rescue process.
  • Commercial landlords – are still not able to forfeit leases for non-payment of rent.

Requirements for the new moratorium procedure will also continue to be relaxed until 30th September 2021, which gives businesses three months of extra breathing space to consider business recovery and insolvency steps.

Insolvency practitioner services & business recovery professionals

Insolvency practitioners often cover many areas of insolvency as well as business recovery. In many cases, they act in an advisory role for individuals, partnership businesses and companies who are struggling with debt and need independent advice on how to resolve the situation.

Not all companies struggling with debt have to resort to liquidation. A key part of an IP’s role is to help ‘rescue’ a company and potentially source a buyer. In assessing the situation, they will be able to decipher the level of debt, whether a business recovery package is possible and make the necessary recommendations. However, if it is not possible to rescue a company, administration, receiverships or liquidation are often the only choice left.

Often IPs will find themselves ‘caught in the middle’ in terms of competing interests. In most cases, an IP will have been working with a company to try and resolve the debt problem without ending up in a last resort situation. When this happens, they are working on behalf of the debtor. However, if it does go to the last resort, i.e. administration or liquidation, generally the same IP handles the process and thereby has to act in the best interests of the debtor’s creditors.

How are insolvency practitioner services regulated?

To be able to provide insolvency practitioner services, an IP must be a member of, and licensed by, one of the UK’s recognised professional bodies, or RPBs. Representatives of the relevant RPB will visit IPs to make sure their standards are being met every three years. In addition to this, IPs are required to continue their professional education, taking part in any training and keeping up-to-date with regulations every year. In some cases, they may need to take part in self-certification programmes.

There are five principal RPBs in the UK that regulate and monitor IPs:

  • The Association of Chartered Certified Accountants (ACCA)
  • The Insolvency Practitioners Association (IPA)
  • The Institute of Chartered Accountants in England & Wales (ICAEW)
  • The Institute of Chartered Accountants in Scotland (ICAS)
  • The Institute of Chartered Accountants in Ireland (ICAI).

In turn, the RPBs are governed by the Insolvency Service to make sure the RPBs are regulating and monitoring IPs correctly.

Is liquidation the only option?

IPs often get involved with a company, particularly large corporate companies, before directors will choose the route of liquidation. In these situations, the role of the IP is to find an alternative option to liquidation, such as voluntary arrangements, receivership and administration.

  • Company Voluntary Arrangements – also known as CVAs, whilst it is a formal insolvency procedure, the directors of the company keep control but are overseen by an IP as a supervisor and manages the CVA.
  • Administration – if a CVA is not suitable, companies can go down the administration route whereby an administrator (the IP) is appointed to manage the business and its assets with the aim of rescuing the company. A ‘pre-pack’ sale is often used in these circumstances.
  • Receivership – in this situation, a receiver (the IP) is appointed by the lender of a fixed charge asset, such as equipment, and it is their role to realise that asset to pay back the debt.

Let’s look at some examples:

  • Ralph & Russo – the creators of Kate Middleton’s engagement dress recently announced they were going into administration. Their business recovery insolvency practitioner is actively seeking a buyer for the business whilst it continues to operate.
  • Llangollen Heritage Railway – a local heritage railway in Wales has gone into receivership, i.e. they have asked the bank to appoint a receiver to realise their assets to pay back their creditors, including the bank. As part of the receivership, the Trust Board who manages the railway want to negotiate with the receiver in order to secure certain asets so that they can re-open in the future.
  • Thorntons – the iconic, 110-year old chocolate manufacturer announced their business rescue operation in that they will be closing all of their physical stores. However, they will continue to work with an appointed IP and trade online in order to pay back their debts.

Company or individual insolvency is not something that anyone wants to deal with; however, the sooner a financial problem is recognised, the sooner it can be dealt with and the more potential the company has in recovering. If you are struggling with debt, contact business recovery professionals at Simple Liquidation for assistance. For more information on how our professional insolvency practitioners may be able to help your business, contact us today.